Top Notable Artificial Intelligence Company to Invest in Instantly
The stock market is packed with substantial profits due to the explosive growth of artificial intelligence (AI). Various companies, ranging from hardware to software, infrastructure to supporting services, have seen a significant rise in their value as part of the AI supply chain over the past two years.
However, some of the most profitable companies in this AI boom appear excessively priced now. Enthusiastic investors have propelled chip designer Nvidia (NVDA 4.18%) to new heights, while overlooking the rising competition. Similarly, AI systems builder Super Micro Computer (SMCI 5.92%) has experienced a significant surge, despite a financial scandal.
Conversely, the digital revolution did not lift all boats equally. Despite the market's rapid growth, some stocks with strong AI associations have not gained record-breaking heights. These companies may be facing challenges, but they could still be overlooked winners.
Considering this, here's a top-tier AI stock that appears significantly undervalued in December 2024. This underestimated tech titan deserves your attention in the AI sphere.
Intel's recent difficulties
I acknowledge that Intel (INTC 0.89%) has experienced better times.
Sales have been declining in recent years, despite the surge in demand for AI chips. Intel no longer holds the title of the world's largest semiconductor company by revenue, and it is not even among the 10 largest chip companies by market cap. Furthermore, Intel has lost its seat on the Dow Jones Industrial Average (^DJI 0.56%) to Nvidia.
The situation reached a critical point this month with the departure of CEO Pat Gelsinger. The interim leadership team, consisting of CFO David Zinsner and client computing group chief MJ Holthaus, has signaled several changes. They are exploring the possibility of spinning off the newly established Intel Foundry business as a separate entity and might sell some of its stake in machine-vision expert Mobileye (MBLY 8.04%).
As a result, the Intel we see today is vastly different from the industry-dominating chip giant of the past decades. The company will continue to evolve in the coming years.
Why Intel's stock appears undervalued
Regrettably, Intel's stock is trading at catastrophic levels. Shares are worth just 1.6 times sales and 0.9 times book value. Essentially, the average Intel investor believes that Intel would be better off ceasing operations, selling all its assets, and finding tax-exempt methods for distributing that cash directly to shareholders.
However, I consider this an error in judgement.
Intel has been investing around $25 billion annually in its infrastructure over the past three years, an increase from its historical average of approximately $15 billion. Most of the additional expenditure was directed towards building or upgrading chip-making facilities worldwide, including sites in the United States. Intel is developing a world-class chip foundry business, providing American companies a potent alternative to Asian industry giants such as Taiwan Semiconductor (TSM 2.82%) and Samsung (SSNL.F -28.76%). This is happening at a crucial juncture, as politicians in Beijing and Washington are increasingly at odds with the chip industry, which is increasingly vital. And, let's not forget, the demand for additional chip-making capacity continues to rise due to the mentioned AI explosion.
Several of Intel's new or improved chip-making factories are now operational, while others are set to come online in stages over the next five years. This is a long-term strategy with significant implications for Intel's business over an extended period. The company may never regain its dominance in the processor design market, but it is transforming into a different, much-needed semiconductor business.
Strategic investments and future growth
Given this context, the bargain-basement valuation makes no sense. By 2030, I predict Intel's price-to-book ratio to be closer to Taiwan Semiconductor's 8.3. If the company ends up spinning off the foundry division, you can double down on that operation and sell the processor design unit if preferred.
I can't assure an immediate triumphant return to financial health and market respect, but you could be looking at market-beating stock returns in the medium to long term. I'm unwilling to part with my Intel shares, and I'm strongly considering purchasing more at these attractive share prices. In the long run, I believe Intel will reclaim its position of leadership as American companies continue to invest in AI hardware, and it's certainly cheaper than Supermicro or Nvidia.
Despite Intel's recent challenges, such as declining sales and being ousted from the Dow Jones Industrial Average, the company has been heavily investing in its infrastructure, spending around $25 billion annually on chip-making facilities. This investment in its foundry business could position Intel as a significant competitor to Asian giants like Taiwan Semiconductor and Samsung, particularly in light of growing political tensions and the rising demand for chips due to the AI explosion. As a result, the undervalued Intel stock, trading at just 1.6 times sales and 0.9 times book value, may offer attractive returns in the medium to long term, making it a potential investment opportunity in the AI sphere.
